Business News

The fall we had to have

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Wall Street headed south and the S&P 500 index went below the important 1131-level but maybe it was the pullback we had to have. Sometimes in the tricky, techy world of charts one step back can be a forerunner to a nice run up.

Stocks went negative before the closing bell on the New York stock exchange and surprise, surprise, it was economic data that determined the market’s showing.

The Dow dropped 76.89 points to 10,662.42 while the S&P 500 lost 9.45 points or 0.83 per cent to 1124.83.

But it wasn’t all bad news with the high on the S&P 500 index hitting 1137.

Taking a closer look at the economic news for the day makes the case that the biggest reason the market fell was because it has been going up so much lately.

The data overnight

In fact, there were two good readings on the US economy. First, existing home sales in August jumped 7.6 per cent and that was an important first step in seeing a much-needed US housing sector recovery. Next, the leading indicators index — which points to whether the US economy is weakening or strengthening — went up 0.3 per cent. This beat expectations.

Against this jobless claims surprised by rising and this didn't help stocks, however, this was a weekly figure and longer run readings of the trend for these claims from those on the dole queue are still pointing in the right direction.

Ups and downs

The volatility index has risen this week and so it shows a bit of apprehension is creeping into the market but you have to remember that the US market is up very close to 10 per cent since July 2. That’s a nice rise and so a pullback is always on the cards.

My charts guy Lance Lai, on my Sky News Business Channel program, made the point that the market might need to comeback a bit to then make the next leap up.

Given the US central bank is ready to try some more quantitative easing and the mid-term elections are due on November 2, if the economy can offer optimism, then another leg up is believable.

More pieces for the puzzle

A good omen was the US retailer Bed Bath & Beyond, which had a good day on the market after its profits and sales figures were much better than expected. Remember, the rally needs the US consumer back in the game.

Tonight the Yanks get the latest durable goods orders and new home sales figures — these will add a few more pieces to the emerging picture which is the US economic puzzle.

For advice you can trust, contact Switzer Financial Services.

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Published on: Friday, September 24, 2010